Jin Chun and Brad: I was trying to figure out the size and value of the merger company. I submit the following for your comments.
Assume: FAMH 41,000,000 shares
Declared EPS: $0.108/share
Total earnings: 41,000,000 shares * $0.108/share = $4,428,000
Remember back when someone posted that Mr. Monas considered FAMH to be a roughly $3.00 stock value? The latest PE range reported to be assumed by FAMH's directors was 25 to 35. Considering the PE range assumed by the board, the stock's value would fall between:
$0.108/share (EPS) * 25 (PE) = $2.70/share
$0.108/share (EPS) * 35 (PE) = $3.78/share
This corresponds nicely with the $3.00 value mentioned by Mr. Monas!
But I got to wondering why he would even mention such a thing. We might have the answer in the merger announcement. If the directors knew about the mystery company long ago, and were negotiating an agreement in principle for the merger, and if the mystery company's stock value was significantly higher than FAMH's, then the agreement in principle would allow several (4) shares of FAMH to equal one share of the mystery company, which I assume would still not be an equal value. I would further assume that the FAMH directors were to be responsible for increasing the FAMH stock value to match the Mystery company's value at a 4 to 1 stock ratio. Hence statements of "$3/share" and the PE range make sense. They give a valuation to FAMH that begins to approach its own industry, and may be the basis for why a 4 to 1 ratio of stock swap was selected. So after the 4 to 1 stock swap, FAMH shares (or whatever they will be called) would then be worth somewhere around $12/share.
But now, just how large is this mystery company? I.e., how many shares would be outstanding in it? The reports said it had a small number of shares compared to FAMH's.
I submit the following calculation:
(EPS * #FAMH Shares)/((#FAMH Shares/4)+ "X")=New EPS
EPS = $0.108/share
#FAMH Shares = 41,000,000
"X" = #mystery co. shares
New EPS = new company EPS based on FAMH earnings only
So, ($0.108*41,000,000)/((41,000,000/4)+ "X") = $0.36/share
Solve for "X" and you get 2,050,000 shares in the mystery company!
If FAMH's present value "should be" near $3/shr, then at 4 to 1 ratio, the current mystery company's share value should be around $12/shr.
What are your thoughts? I don't plan to defend these cogitations, but I offer them as fodder to ruminate upon. Let's have some discussion...
- Jim |
